While the macroeconomic challenges are keeping the tech sector under pressure, it looks well-positioned for long-term growth with increasing investments and ongoing digital transformation. So, investors looking for quality tech stocks can consider buying Dolby Laboratories, Inc. (DLB), CTS Corporation (CTS), and Kimball International, Inc. (KBAL).
According to Gartner, Inc., global government IT spending is expected to reach $589.80 billion in 2023, a 7.6% rise from 2022.
Apeksha Kaushik, Principal Analyst at Gartner, said, “Governments are increasingly spending their IT budgets to replace legacy applications. Gartner’s 2023 CIO and Technology Executive Survey showed that 57% of government CIOs plan to increase funding for application modernization in 2023, up from 42% in 2022.”
The information technology industry is estimated to grow at a 7.9% CAGR until 2027. Demand for cloud computing services will likely fuel the market’s growth, with businesses increasingly opting for cloud-hosted apps for their day-to-day operations.
Investors’ interest in tech stocks is evident from the Technology Select Sector SPDR ETF’s (XLK) 12.2% returns over the past three months and 15.7% returns over the past six months.
Let’s delve deeper into the fundamentals of the stocks mentioned above.
Dolby Laboratories, Inc. (DLB)
DLB designs and manufactures advanced audio and imaging hardware and software for the entertainment, cinema, broadcast, and television industries. Its products enhance image and sound quality during content creation, distribution, and playback, providing a superior audiovisual experience for audiences.
On March 23, 2023, DLB and Audible, a renowned producer and supplier of premium audio storytelling, have released Dolby Atmos on Audible, bringing immersive cinematic listening experiences with groundbreaking spatial sound. The launch expands the audio narrative collection, providing listeners with a more immersive audio experience.
The partnership might potentially lead to more collaborations and licensing arrangements, expanding DLB’s reach and profitability in the audio storytelling a company.
DLB’s trailing-12-month ROTA of 8.55% is significantly higher than the industry average of 0.26%. Its trailing-12-month ROCE of 9.79% is significantly higher than the industry average of 0.71%.
DLB’s revenue increased 12.4% year-over-year to $375.89 million in the second quarter that ended March 31. Its operating income increased 152% from the year-ago value to $109.22 million. Also, the company’s non-GAAP net income and EPS increased 30.4% and 37% year-over-year to $122.60 million and $1.26, respectively.
The consensus revenue estimate of $1.31 billion for the year ending September 2023 represents a 4.4% increase year-over-year. Its EPS is expected to grow at 11.4% year-over-year to $3.50 for the same period. It surpassed EPS estimates in three of four trailing quarters. DLB’s shares have gained 16% over the past six months to close the last trading session at $82.70.
DLB’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
DLB also has an A grade for Quality and a B grade for Sentiment. It is ranked #2 out of 40 stocks in the Technology – Electronics industry. Click here for the additional POWR Ratings for Growth, Value, Stability, and Momentum for DLB.
CTS Corporation (CTS)
CTS manufactures and sells sensors, actuators, and connectivity components in North America, Europe, and Asia. The company provides sensors and actuators, switches, temperature sensors, potentiometers, and fabricated piezoelectric materials and substrates.
CTS’ forward EV/Sales multiple of 2.29 is 17.8% lower than the industry average of 2.79. Its forward Price/Sales multiple of 2.36 is 11.7% lower than the industry average of 2.67.
CTS’ trailing-12-month ROCE of 11.60% is significantly higher than the 0.71% industry average. Its trailing-12-month ROTA of 7.72% is significantly higher than the 0.26% industry average.
CTS’ net sales came in at $145.99 million for the fiscal first quarter that ended March 31, 2023. Also, its total current liabilities came in at $105.78 million for the period that ended March 31, 2023, compared to $112.53 million for the period that ended December 31, 2022. Its total liabilities came in at $232.87 million, compared to $242.26 million for the same period.
Analysts expect CTS’ revenue to increase 5.7% year-over-year to $623.76 million in 2024. Its EPS is expected to grow 11.9% to $2.70 in 2024. It surpassed EPS estimates in three out of four trailing quarters. The stock has gained 18.9% over the past year to close its last trading session at $44.71.
It’s no surprise that CTS has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Quality and a B for Stability. It is ranked #27 in the same industry.
Beyond what is stated above, we’ve also rated CTS for Sentiment, Momentum, Value, and Growth. Get all CTS ratings here.
Kimball International, Inc. (KBAL)
KBAL is an omnichannel commercial furnishings company with expertise in the workplace, health, and hospitality markets. Its portfolio of furniture products and services are sold across all business units under the Kimball, Interwoven, Poppin, DStyle, National, Etc., and Kimball Hospitality brands.
KBAL’s forward EV/Sales multiple of 0.71 is 56.1% lower than the industry average of 1.62. Its forward Price/Sales multiple of 0.64 is 50.7% lower than the industry average of 1.30.
KBAL’s trailing-12-month gross profit margin of 35.17% is 17.4% higher than the 29.96% industry average. Its trailing-12-month asset turnover ratio of 1.69x is 112.1% higher than the 0.80x industry average.
KBAL’s net sales came in at $526.94 million for the nine month that ended March 31, 2023, up 7.8% year-over-year. Also, its gross profit increased 24.9% year-over-year to $188.23 million.
Also, its total liabilities and shareholders’ equity came in at $382.80 million for the period that ended March 31, 2023, compared to $461.28 million for the period that ended June 30, 2022.
Street expects KBAL’s revenue to increase 7.2% year-over-year to $713.65 million in June 2023. Its EPS is expected to increase 144.3% year-over-year to $0.86 in June 2023. It surpassed EPS estimates in three of four trailing quarters. Over the past three months, the stock has gained 78.1% to close the last trading session at $12.52.
KBAL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #13 in the same industry. It has a B grade for Value. To see additional KBAL’s rating for Momentum, Growth, Stability, Sentiment, and Quality, click here.
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DLB shares were trading at $82.01 per share on Wednesday afternoon, down $0.69 (-0.83%). Year-to-date, DLB has gained 17.01%, versus a 7.66% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions. More...
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